Lotte prepares to shut its China headquarters

Lotte, Korea’s largest retailer, has decided to pull out of China altogether, due to the country’s continued retaliation against Korean firms after Seoul’s decision to station a U.S. anti-missile battery in 2016, as well as sluggish private consumption amid the prolonged COVID-19 lockdown. Instead, Lotte plans to focus on Indonesia, Vietnam, Malaysia and other Southeast Asian markets.

Lotte will close down its Chinese headquarters in the first half of this year and most of its employees there have already returned to Korea, the company said Sunday. The only process left is the cancellation of its business license.

“We have practically completed the withdrawal of our business from China. We only have paperwork left. We are maintaining our stance on expanding our business in Southeast Asian countries such as Vietnam, Indonesia and Malaysia, but COVID-19 is still a problem there so we are closely watching the situation,” said an official at Lotte Holdings, which is the conglomerate’s parent company.

Lotte established its Chinese headquarters in 2012 to supervise the group’s businesses there. Lotte Shopping, Lotte Holdings and Lotte Chemical invested 70 percent, 15 percent and 15 percent, respectively, in the Chinese headquarters.

China was one of Lotte Group Chairman Shin Dong-bin’s key markets for global business. Shin had aimed to achieve 200 trillion won ($157.1 billion) in sales to become one of Asia’s top 10 retailers by 2018.

However, the Korean government deployed a U.S. Terminal High Altitude Area Defense (THAAD) anti-missile system on a golf course in Korea owned by Lotte despite strong opposition from China. In retaliation, Beijing started to impose tougher regulations on Lotte’s subsidiaries in China. Lotte Mart and Lotte Department Store closed down their businesses in China in 2018, followed by Lotte Chilsung Beverage and Lotte Confectionery the next year.

Lotte also planned to build an amusement park in Shenyang, Liaoning Province, which took a long time to get permission from the Chinese government. The project finally got the green light in April 2019, but was halted soon after due to the outbreak of the coronavirus pandemic in China.

When Lotte closes down its headquarters in China, it will only have one department store operating in Chengdu. The store continues to make a profit, but the amount has been decreasing gradually. Lotte Chemical remains open in China, but it also displayed poor performance there in the first quarter of this year.

On the other hand, Lotte’s retail businesses in Indonesia and Vietnam are displaying stellar performances.

Lotte Shopping opened its first department store in Indonesia in 2013 and launched two new stores in Vietnam in 2014 and 2015. The company achieved a profit of 5.9 billion won in the first quarter of this year from those three stores alone. Lotte Mart also operates 49 supermarkets in Indonesia and 14 stores in Vietnam. The group’s retail unit made 8.7 billion won between January and March this year in the two Southeast Asian countries, which is 1.1 billion won more than what it made in the Korean market during the same period.